Western Potash: Lowest hanging fruit

Western Potash’s Milestone Project in Saskatchewan is now the most advanced undeveloped potash asset in the world. Which makes the company ripe for an acquisition, or a joint venture partnership, with a potash-hungry Chinese government-funded corporate suitor.

So says Fadi Benjamin, a Toronto-based mining analyst for the Canadian brokerage house and merchant bank, Northern Securities.

His upbeat remarks are encouraged by the fact that Western Potash was recently granted environmental approval from the Saskatchewan government to build a mine on the site of its 226-million-tonne Milestone potash deposit.

“This important development is the final step in technically de-risking the project,” Benjamin says.

Milestone is located 30 kilometers southeast of the city of Regina and is at the heart of the world’s richest and most prolific concentration of potash mines and in-development deposits. In fact, Saskatchewan hosts about half of the world’s potash reserves and currently produces about a third of global output.

Furthermore, Western Potash also benefits from an independently-validated feasibility study (a detailed blueprint for a mine) that attests to the robust economic viability of a future mine. This pivotal benchmark development also clearly demonstrates that Milestone is a “world-class asset,” according to Benjamin.

Specifically, he’s referring to the fact that Milestone is capable of yielding up to 2.8 million tonnes of potash per annum at pre-tax mining costs of around $62 per tonne for at least 40 years. This would generate approximately $1 billion a year in revenues, based on current potash prices (which are in the range of $400-$450 per tonne). This also computes to a projected payback within six years on the mine’s anticipated $3.3 billion in commissioning costs.

Additionally, the project is amenable to “solution-extraction” mining methods. This means that large amounts of water can be used to flush deeply-buried potash to the surface, instead of mechanically excavating it. In so doing, Milestone is expected to become the first such mine in the world that uses treated effluent, rather than fresh water, to extract this salt-based mineral.

Besides facilitating an environmentally-sustainable mining operation, this solution-extraction process will also offer key competitive advantages, according to company spokesperson John Costigan. For instance, it will translate into significantly lower mine construction costs than is the case with conventional potash mining. And a solution-extraction mine is expected to be faster to build and commercialize.

“All told, this project is essentially a low-risk, high-volume mining operation,” Costigan says. “It’s also a project that carries very limited political risk, given our geography. We also own our property outright. Because of this we have successfully avoided the development uncertainties associated with having a property that encompasses any parkland or is under First Nations jurisdiction.”

”In essence, these various dynamics make Milestone very attractive to anyone who wants to get into the potash mining business without any barriers to entry other than capital expenditure costs,” he adds.